Farm income may slip despite normal monsoon
India, which is the second largest food producer globally, is expected to witness yet another good crop this year because of near normal monsoon for the third consecutive year.
But for farmers, who account for more than 50% of the country's 1.3 billion population, the possible good harvest may not be really bringing in the good news because of falling income and profitability.
According to Crisil, farm profitability has remained stressed despite normal rains. It is a mixed bag for rural income as luckily the non-farm sector is seeing better days.
“There are some spoilers,” Crisil chief economist D K Joshi said, adding “rainfall distribution has been patchy and farmer income is down. The good news is that rural non-farm side is seeing better days. Also, given healthy overall production, food inflation might stay contained.”
The south-west monsoon has virtually ended with a 9% short of the long average which is considered normal by the meteorological department.
Despite bumper food grain and horticulture production, farm income has been falling during the last two years. Doubling farm income by 2022 seems to be elusive.
As it is average farm income is as low as Rs 20,000 a year and even doubling does not make much sense. The income is low despite India producing a record 275 million tones of food grain and a record 375 million tones of horticulture in 2017. Last year Rs 90,000 crore worth of fruits and vegetables were lost due to wastage, poor handling and transportation and poor post-harvest facilities like cold storage.
Agricultural economist Abhijit Sen, who was formerly a member of erstwhile planning commission, told DNA Money that doubling farm income by 2022 is virtually ruled out. This year output data is not yet available to indicate if farm income has gone down.
But in 2017 farm income did go down despite good farm production because of lack of demand. In other words, supply was more than demand. In India, the problem is 70% of demand for farm products came from rural area and if farm income does not go up demand too will not be there, he said, adding rich farmers, who can afford, want more of processed food and hence there is a need to step up food processing industries in the country.
One way is to step up farm exports, he said adding, unfortunately, global prices of farm products are less than domestic prices now so India is not competitive in agri exports. Until 2013 India had an advantage in exports as agri prices were lower than global prices.
The last time India witnessed good monsoon was from 2010-13, which saw four consecutive years of good monsoon when annual farm growth recorded a good average of 4.7%.
This time the average farm growth might not be high as the government resorted to demonetisation in November 2016, the first of the three years of good monsoon. This demonetisation came at a time when farmers were rejoicing good monsoon after two years of severe drought.
Also demonetisation in November that year came at a time when farmers were harvesting a good kharif crop and sowing for the rabi crop. The farmers were starved of cash when they required the most, resulting in the overall farm growth clocking around 2% that year despite good monsoon.
Despite normal rains, there are pockets of stress this monsoon season. Key kharif growing states like Gujarat, West Bengal and Bihar are hurt by the erratic monsoon, while six others, Maharashtra, Rajasthan, Andhra Pradesh, Madhya Pradesh, Uttar Pradesh and Karnataka are seeing “pain points”, Crisil analysis said.
The worry is now about the rabi crop because Gujarat, West Bengal and Maharashtra have deficient reservoir levels. Crop-wise, there is a strain in ground nut, cotton, tur, jowar and bajra.
Advanced estimates indicate that jowar and bajra production may be down 10-15% this year, groundnut down 16%, cotton down 7% and tur down 4%.
“Secondly, calendar 2018 is turning out to be another year where farmer incomes have not seen a material pick-up. This is despite government estimates of marginally higher kharif output, Crisil said, adding higher minimum support prices have done little to lift crop profitability so far.
Mandi prices have been training minimum support prices (MSPs) announced in July 2018. Non-crops are doing marginally better. About 37% of farm income came from fruits, vegetables, milk, poultry and fishing. While some of these have witnessed an increase in prices, some of them like milk has witnessed a drop in price.
One positive development is the government’s emphasis on rural infrastructure development. After the loss of jobs in rural areas post demonetisation, steady demand for low-skilled jobs for farm labour has resulted in a boost in non-farm rural wages.
According to Sanjay Kaul, managing director and chief executive officer of National Collateral Management Services, the best way to tackle farm distress is through technology.